Pipeline expansion, trading platform to aid India’s gas demand growth
India’s gas demand will continue to rise over the next few years, aided by pricing and policy reforms undertaken by the government and massive investments planned in pipelines and port infrastructure, the head of India’s oil and gas regulator told S&P Global Platts in an interview.
While this would help to cut oil imports to some extent, it would boost LNG imports in the coming years as the pace of domestic gas consumption growth will be at a much faster rate than the rate at which domestic gas production can grow, according to Dinesh Kumar Sarraf, chairperson of India’s Petroleum and Natural Gas Regulatory Board.
“We are talking about multiplying gas consumption in India. Therefore, we have to create more and more infrastructure,” Sarraf said. “The good thing is that new players are coming into the gas sector because of the progressive policies of the government.”
India’s share of gas in its overall energy mix is only 6%, much lower than the global average of nearly 24%, Sarraf said. New Delhi is stepping up efforts to raise the share of gas to 15% by 2030, but consumption growth faces hurdles because of infrastructural and pricing issues.
According to S&P Global Platts Analytics, India’s dependence on LNG imports is set to rise as domestic production is expected to grow at a compound annual growth rate of 8.89% over the next five years, while demand is expected to increase by a compound annual growth rate of 11.07% over the same period.
Sarraf said work on many cross-country pipeline projects were going on in full swing, which would help to raise pipeline connectivity from about 16,000 km to 34,000 km in the next couple of years. In addition, population coverage under the city gas distribution network had also risen to 71%, from as low as 17% just two years ago.
ENOUGH ROOM FOR GROWTH
While New Delhi is speeding up plans to build pipelines and expand the gas distribution network, analysts say economic unviability of gas compared with coal as an alternative fuel is one of the main factors that would impede the growth in gas consumption.
Therefore, coal-to-gas switching in India needs to be spurred by governmental policies, since gas would be unable to displace coal on an outright economic basis.
But Sarraf said that bright prospects for overall energy growth in the country means that consumption of both gas and coal would grow substantially.
“I think since the intensity of India’s energy consumption will increase in a big way in [the] coming years, both gas consumption as well as coal consumption will increase,” Sarraf said. “We will need more of gas. But that does not mean we will require less of coal.”
“When it comes to gas-based power plants, there is so much of idle capacity. Even there is scope to push growth in the fertilizers sector,” Sarraf said.
Spot LNG prices have been in the $4-$5/MMBtu range from April to August due to oversupply. But this week, the S&P Global Platts JKM for November has risen above $6/MMBtu, tracking higher crude oil prices.
India is inching closer to setting up a gas exchange that would help to provide a transparent pricing mechanism and give participants trading on the exchange a level-playing field, Sarraf said.
“One of the reasons why India’s gas consumption has not increased significantly in the past is because big industrial gas consumers doubt whether they would be getting gas at an optimal rate,” Sarraf said.
“So we are working on a market mechanism that will help to bring transparency to the entire process and help better price discovery. People who trade on the exchange will also get access to pipelines for physical delivery of the gas. It’s just not about paper trade. That will help to draw the big industrial consumers of gas into the exchange,” he added.
According to S&P Global Platts Analytics, India’s push to form a gas trading hub is a natural step as they continue to grow their gas consumption.
“The idea of a trading hub will likely lead to more transparency and efficiency in the market at a time where international spot prices are not far from domestic prices. This could help to spur demand growth as more buyers look to enter the market,” said Jeff Moore, manager, Asian LNG Analytics at S&P Global Platts.